Essay on "Operations Management Strategy of Lenovo"

Essay 8 pages (3045 words) Sources: 15

[EXCERPT] . . . .

Operations Management Strategy of Lenovo

Many observers have suggested that the 21st century will be the "Century of Asia," with China leading the way. The recent economic performance of China appears to be fulfilling this observation, with companies such as Lenovo being among the major success stories. Having been transformed from a minor player as Legend Group. Ltd., Lenovo has emerged as a frontrunner in the computer manufacturing industry in recent years, fueled in large part by their acquisition of IBM's personal computer division in 2004. Other factors driving the company's growth have included the Chinese government's emphasis on developing markets for Chinese-branded products domestically as well as abroad, as well as the same forces that are driving globalization. This paper provides a review of the relevant literature to evaluate the current international operations management strategy of Lenovo and the extent to which the organization's international operations management strategy likely to be appropriate in the future. A summary of the research and salient findings are presented in the conclusion

Review and Discussion

What is the current international operations management strategy of Lenovo?

The internationalization of Lenovo's operations management. The drivers of globalization in operations are: (a) technological; (b) political; (c) economic; and (d) socio-cultural (Lecture 2, slide 5). Each of these drivers is apparent in the internationalization of Lenovo's operations management strategy to varying degrees. For example, the operations management strategy that is currently in place at Lenovo has been developed through a series of joint ventures, acquisitions and strategic partnerships that have been designed to increase its access to technology in a political sphere that has hampered growth for others in ways that actually helped the company grow its business in its domestic market as well as overseas. Likewise, the socio-cultural aspect are apparent when the company entered the personal computer (PC) market as early as 1988 by being the only firm offering Acer computer Chinese word processor add-on cards and quickly began marketing its own brand through a joint venture with a Hong Kong company that had the financial resources and international experience to help Lenovo during this start-up period (Yusuf & Nabeshima, 2006). Finally, the economic aspects are apparent in that this strategy proved highly effective, and sales quickly grew supported by a nationwide distribution system as well as service centers located throughout China. In 1990, the company sold just 2,000 PCs in China but by 1995, their sales had increased to more than 100,000 PCs a year (Yufus & Nabeshima, 2006).

Other aspects of the company's internationalization can be viewed from the perspective of Vernon's product cycle theory which is highly applicable to Lenovo in this area. For instance, according to Saxon, "The Chinese are now taking steps to gain world recognition for Chinese-branded products. For example, Lenovo (formerly Legend Group, Ltd.), the Chinese computer company that bought IBM's personal computer business, is now selling computers under its own brand in the United States" (2007, pp. 37-38). Likewise, Anchordoguy (2008) points out that IBM's divestiture of its PC division was based on its foundering performance whereas Lenovo's management recognized the profit potential available in its acquisition. This point is also made by Xiang and Teng (2007) as well as Junarsin (2009) who note that Lenovo used the IBM acquisition specifically to facilitate its entry into global markets.

Likewise, the generic international operations strategy is apparent in Lenovo's drive to increase its market share at home and abroad as well as through the internationalization of its management. The generic international operations strategy consists of two basic elements which can be used simultaneously:

1. Market access strategy -- operations are internationalized in order to access attractive markets outside the home country; and,

2. Resource seeking strategy - operations are internationalized in order to access specific resources (e.g. low cost, scarce, superior) outside the home country (Lecture 2, slide 29).

Both of these elements can be found in Lenovo's international operations management strategy. For instance, Liu (2007) reports that in 2002, pursuant to the Chinese government's "go global" policy that encouraged Chinese companies to take their core competencies and expertise to a global level, Lenovo did just that. As a forerunner in the Chinese it sector, Lonovo revamped its image and in 2003, changed its brand name from New Technology Development Company (Yusuf & Nabeshima 2006; Bhattacharya 2008) and subsequently Legend Group to its current incarnation. The company, though, did not remain in mainland China but rather established branches in Hong Kong and used these to make investments in China as a way of avoiding the bureaucratic entanglements that characterize the Chinese government (Huang 2006). In this regard, Huang reports that, "At the time of its founding, Lenovo was denied a license in PC manufacturing because it was not a traditional state firm. It ventured into PC manufacturing only under the legal cover of a Hong Kong firm, QDI, which Lenovo acquired" (2006, p. 288).

Facilities.

Despite the inherent complexity involved, Lenovo uses a process focus for its facilities management. For instance, the company has built on its success by developing a multicultural leadership team that does not have a single international headquarters but is rather able to meet wherever and whenever they believe it is most appropriate; moreover, the company is committed to developing the "next big thing" but only provided that it can be brought to market within 2 years (About Lenovo, 2011). The company has also plowed its profits into expanding its research and development facilities to improve its competitiveness by establishing centers in Beijing, Hong Kong, Shenzhen and California's "Silicon Valley" (Yusuf & Nabeshima, 2006). "[Lenovo's'] subsequent success," Yusuf and Nabeshima emphasize, "can be traced to the skillful integration of hardware and efficient services. With the creation of the Legend Chinese Word-Processing System Users' Association, the company turned its users into advocates for its products and valuable sources of feedback for further product development" (2006, p. 280). Taken together, this track record of international operations success suggests that the company is doing a great many things right with respect to its operations facilities compared to their competitors.

Quality Management.

Despite their successful track record in recent years, the company did experience some quality management problems during the early years of the 21st century that had some mixed results. On the one hand, the company lost a domestic computer contract to its rival Dell to a Chinese government agency because the agency viewed quality as having slipped at Lenovo (Saxon 2007). Although Saxon does not specify what the quality management problems were or how they were resolved, the net impact was to lose the potentially lucrative contract. On the other hand, Saxon notes that, "This was one of the motivations for Lenovo to buy IBM's PC business" (2007, p. 38).

The Supply Network.

With respect to the company's supply network, Dunning's eclectic model reflects Lenovo's approach to some extent. For example, the company took special pains to identify the most cost effective approach to procurement and assembly with respect to location-specific factors, and emphasized the internalization of its resources to achieve its corporate goals. Some glaring owner-specific advantages included the acquisition of IBM's personal computer division, of course, but there were some location-specific factors that appear to have contributed to the company's success as well. For instance, Huang notes that, "The arrival of firms such as Lenovo is a sign that China has a supportive entrepreneurial environment. Many Western analysts herald its acquisition of IBM's PC business as a harbinger of the rising world-class domestic Chinese companies. Using the success of firms like Lenovo as evidence, a McKinsey Quarterly article has gone so far as to claim that China has the 'best of all possible models'" (2006, p. 288). With respect to location-specific issues, this is only applicable to some aspects of the company's operations. For instance, "All of the manufacturing, service, and R&D operations of Lenovo in China are legally organized as subsidiaries of its Hong Kong firm and as such they are subject to laws and regulations pertaining to FDI, rather than those far more restrictive laws pertaining to domestic private businesses" (Huang, 2006, p. 288).

Some components of stage theory could also be said to be applicable to Lenovo's supply network as well, with the company's strategic approach to business growth being reflective of Lenovo's situation (Lin & Lin, 2008). According to Lin and Lin, "Probably the most successful merger to date for China has been the purchase of IBM's PC division by Lenovo. Mostly unknown outside of the PRC, Lenovo was launched into the foreground when it announced its intentions to acquire the PC division of IBM" (2008, p. 32). Just 2 years later, Lenovo began retailing computers in the United States (Silk & Malish 2006) and established headquarters in New York, with major operations continuing in Raleigh, North Carolina as well as Beijing (Dowling 2005), with a number of components being outsourced to other developed nations (Krugman 2008). The net effects of this acquisition and its subsequent supply network arrangements are… READ MORE

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